June 7, 2006
The Stock Buyers and the
stuff and there’s stock. These are two entirely different categories of
things you can buy. And the people who buy stuff are as different from
the people who buy stock as Nipsey Russell is from Jayne Russell.
buy stuff pick out items they will use in the course of their daily
lives. Whether they drive to the store to buy the stuff or purchase it
online, the stuff they buy is chosen for its utility to their day-to-day
buy stock are different. Oh, sure, they buy stuff too. They need
stuff. But when they’re buying stuff, they’re only taking a temporary
break from buying stock, probably because they’ve run out of food or
detergent with which to wash their socks. They really want to just get
back to buying stock, which they do through sophisticated, licensed
institutions filled with weird people just like them.
these people. Someone needs to capitalize American industry. So I mean
it as no indictment when I call them weird. It’s just that they’re
weird. Vive la difference!
distinction between stock buyers and stuff buyers is really only
important when a company that sells both stuff and stock faces the task
of making sure it is correctly telling the difference. And that brings
“Internet phone” company that has silly commercials that say “people do
stupid things,” did not think it was doing a stupid thing when it issued
an Initial Public Offering. But the institutional investors who usually
drive the success or failure of IPOs were not jazzed about Vonage.
knows? Maybe the issue was clarity. Internet or phone? Which is it?
Maybe the commercials featuring the guy doing the robot dance and the
mascot stuck in the revolving door left them shaking their heads and
asking “Huh?” They certainly had that effect on the rest of us.
rate, institutional investors weren’t biting on Vonage stock, and since
Vonage had probably already decided how to spend the expected $531
million in capital, company executives started looking for a Plan B.
someone said. What about our customers?
stuff buyers. The line was being breached. Vonage decided to set aside
4.2 million IPO shares exclusively for its customers at a price of $17
per share. Surely the people who buy our stuff will buy our stock, they
know you’re not supposed to do this? Apparently Vonage didn’t. But
securities law says you can’t recommend someone buy your securities
unless you have ascertained that the person is a good candidate to
benefit from the purchase. So just because you like buying “internet
phone” service (whatever that means), it doesn’t necessarily mean the
stock of the “internet phone” company is a good investment for you.
because you like to drink Coke doesn’t mean you should own their stock,
does it? Same idea applies here.
entirely possible that no one would really care all that much, except
for the tricky little issue of the $17 stock having plunged to less than
$12. This has left a fair number of Vonage customers, who made purchase
agreements but haven’t actually paid for the stock yet, refusing to do
so on the grounds that they were given bad investment advice by Vonage.
Many of these customers have now joined a class action suit asserting
this claim in federal court.
return, is trying to force its customers to ante up.
review: Company seeking growth and needing capital convinces its
stuff buyers to become its stock buyers (because the real stock buyers
aren’t buying), then when the stock tanks, the customers sue the company
and the company tries to force its customers to pay for stock they wish
they had never agreed to buy.
executives, take note. These people over here are stock buyers. They’re
the ones who are wearing suits and looking at their Blackberrys on the
beach. Sell your stock to them. Now those people, over there, who are
walking around with your products in bags – those are stuff buyers. Sell
them your stuff and thank them.
Vonage understand this? Well, people do stupid things.
© 2006 North Star
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